Aggrieved investors have filed many lawsuits in the crypto industry and have seen their monies disappear on various exchanges. Most of these incidents involve the fraudulent promotion of cryptocurrency tokens to the investing public and consumer cash misuse and diversion.
Stablegains, a yield platform for decentralized finance, is being sued (1) by a group of its users. The platform was accused of deceptive advertising and diverting investor funds to another company.
Stablegains Being Sued for Using its Services for Private Gain
Several investors have filed a lawsuit against Stablegains, claiming that the platform misled its clients by falsely advertising their services and products.
In addition, the court action said that the DeFi platform was out for financial benefit at the expense of their investors. Because of these actions, users' money was stolen, and the platform was shut down.
On February 18, Alec and Artin Ohanian brought a lawsuit before the US District Court for the Central District of California. According to the lawsuits, Stablegains secretly took money from its customers without permission, and customers' money was transferred to a new system called Anchor Protocol.
Furthermore, Anchor Protocol returned 20% to backers using Terra Dollar, a stablecoin that Terraform Labs (UST) developed. Stablegains, for its part, distributed 15% of the profits it made from Anchor Protocol to its consumers. In other words, it profited from dealings with Anchor Protocol due to the disparity in returns.
Incorrect Advertising and Violations of Federal Securities Laws
The plaintiffs claim that Terra USD (UST) was secure and that Stablegains was aware of the stablecoin and its native token, LUNA. To its customers' detriment, the DeFi yield platform kept this information from them. Instead, it advocated for the stablecoin by portraying it as a reliable investment option.
From what we can tell, Stablegains has been breaking federal and state securities laws through its cooperation with the UST and LUNA. According to the lawsuit, the company was not registered as a securities exchange or broker-dealer with the US Securities and Exchange Commission.
According to the plaintiffs, investors were put at greater risk due to Stablegains' operations and fraudulent portrayal of users when the UST ecosystem failed in May 2022.
In response to the algorithmic stablecoin's decoupling from the dollar, the value of crypto market assets fell. Investors and the entire cryptocurrency sector lost over $18 billion due to the collapse of Terra.
Stablegains was also accused of not protecting investor cash from the collapse of the Terra/LUNA ecosystem. In contrast, the DeFi yield platform hid its history of UST ties. For instance, it has scrubbed its website of any references to UST's supposed security.
Most importantly, Stablegains did not completely liquidate its remaining assets and refund its customers. Instead, it returned the vast majority of clients' deposited assets. The corporation planned a covert transfer of funds to Terra 2.0.
Stablegains stopped supporting Anchor Protocol and removing related services and apps on May 21, 2022. A blog post and a tweet from the company's verified account informed users that they should withdraw any monies they have.
We’re discontinuing the Stablegains service. Please withdraw your remaining funds.
— Stablegains (@stablegains) May 21, 2022
See the anticipated timeline + a letter from the team here: https://t.co/ebx4Z78sp1
